Franchisees’ Attempt to Relitigate Case an Abuse of Process

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Author: Anthony Pugh, Student-at-Law, Law Works P.C.
Editor: Ben Hanuka

In M.Y. Sundae Inc. v. International Dairy Queen, an April 25, 2018 decision of the Supreme Court of British Columbia, a self-represented franchisee and its principals appealed a decision of a master, who dismissed their action against International Dairy Queen, Inc. on the basis that the action was an abuse of process.

The judge hearing the appeal upheld the master’s decision that the proceedings amounted to an abuse of process, further concluding that they were also vexatious.  The franchisees’ case was founded on allegations about a release which another Supreme Court of British Columbia judge had already determined to be enforceable in previous litigation.

Key Facts

M.Y. Sundae Inc. was a franchisee of Dairy Queen Canada, Inc. Wesley Richards and Irene Richards were spouses and the principals of the franchisee.

In 2013, after Dairy Queen Canada had sent several notices of default, the parties entered into a mutual cancellation and release agreement.

In 2014, Dairy Queen Canada sought an injunction against M.Y. Sundae and the Richards, alleging that they were continuing to operate the franchise. After M.Y. Sundae ceased operating as a Dairy Queen, the franchisor amended its notice of application to allege that the franchisee parties were operating a competing business in violation of the release.

The franchisees brought a counterclaim, alleging that Dairy Queen Canada discriminated against them by holding them to a higher standard than other franchisees. They claimed that they signed the release under duress and sought damages for breach of contract, unfair dealings, and breach of disclosure under Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 (although the franchise was located in Richmond, B.C.).

After the summary trial, the motion judge found that the release was enforceable, and that it provided a release of any and all claims arising out of the franchise agreement and its termination.

On an earlier appeal of the summary trial decision before the British Columbia Court of Appeal, Mr. Richards alleged that he did not sign the release and that his signature was forged, reversing his earlier position that he signed the release under duress. He sought to bring fresh evidence from a purported handwriting expert. The court refused to admit this evidence, holding that it was “incapable of belief”.

Before the appeal of the summary trial decision, the franchisees sued International Dairy Queen, Inc. for breach of contract. International Dairy Queen, Inc. was not a party to the franchise agreement. The franchisees sought to amend their claim both to add claims in tort and to add American Dairy Queen Corporation as a party. They alleged that there was a conspiracy by the three corporate Dairy Queen entities to terminate the franchise and that Mr. Richards’ signature was forged by one of his employees.

International Dairy Queen succeeded in its application before a master under Rules 9-5(1)(a), (b), and (d) of British Columbia’s Supreme Court Civil Rules to dismiss the action on the basis that it disclosed no cause of action, was vexatious, or was an abuse of process. The franchisees appealed to the Supreme Court of British Columbia and sought to introduce fresh evidence.

Supreme Court of British Columbia refused to admit fresh evidence

On appeal from the master’s decision, the court held that it was not satisfied that six affidavits, which Mr. Richards sought to include as fresh evidence, were not available at the time of International Dairy Queen’s Rule 9-5(1) application, or that they would have affected the outcome of that application.

In one of these affidavits, Mr. Richards asserted that one of his employees was secretly working for one of the Dairy Queen corporations, hacked into the franchisee’s computer systems in 2013, fraudulently signed the release, and then disappeared.

Mr. Richards failed to show that this evidence was not available at the time of the hearing before the master. He had claimed that he could not do so because he did not have access to his hacked computer at the time. He added that he could not have obtained a computer expert to retrieve the allegedly hacked material because he was suffering from anxiety and depression as a result of Dairy Queen’s actions during the four years between the time of the alleged hack and the hearing before the master.

In another affidavit, Mr. Richards appended a report from a purported forensic document examiner, who opined that the signature on the release was not that of Mr. Richards. Mr. Richards claimed that he could not bring that evidence before the master because it took him some time to obtain the expert opinion.

To explain his reversal from claiming duress to claiming a forgery, Mr. Richards alleged that he could not take the time to read his original affidavit because his lawyers were charging him by the hour, and that his lawyers did not allow him to review the release. He stated that he thought he was being questioned about a different document and was tricked into giving that evidence.

The court held that this evidence was not capable of belief and that it could have been produced before the master.

The action was an abuse of process and vexatious

The defendant, International Diary Queen, and the proposed defendant, American Dairy Queen, were not parties to the franchise agreement. At the application to dismiss before the master, they argued that the claim for breach of contract contained no clause of action.

The franchisees sought to amend their claim to plead claims in tort. Neither the master, nor the judge on appeal, decided the application to amend, or determined whether there would be a cause of action in tort. Instead, both found the action, whether in contract or tort, was an abuse of process.

The case was an abuse of process because it was founded on Mr. Richards’ argument that he did not sign the release. The summary trial proceedings had already determined that the release was enforceable.  This release also covered affiliates of Dairy Queen Canada, including International Dairy Queen.

This argument ran directly against Mr. Richards’ previous sworn testimony. During the summary trial proceedings, Mr. Richards testified that he signed the agreement, albeit under duress. The Court of Appeal held that his assertion on appeal that he had not signed it was not believable.

Mr. Richards had a pattern of trying different arguments before different courts to reargue the same issue. Fairness supported the finality of litigation.

Re-litigation of the validity of the release was not desirable. The court found that the fresh evidence that Mr. Richards sought to include would not have affected the result of the summary trial. While Mr. Richards and his family were financially devastated by the termination of the franchise agreement, the franchisees were not denied fairness.  For the same reasons, the court also concluded that the franchisees’ claim was vexatious.

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